**Thanks**

for the impaired loans totaled in the region of RM 16,354 million in January 2016 alone, and this figure increased to RM 23, 914.4 million in February 2019, even though the ratio of net impaired loans to net total loans in percentage has been reduced to 0.93% by February 2019. Credit scoring methods are by nature quantitative methods of evaluating credit and are only as good as the scoring algorithms that predict consumer behavior. If it is implemented properly, then cases of

More worryingly for bankers, such a system does not exist for another important consumer group of lending, small to medium sized Industries (SMEs). SMEs contribute one third of the country's Gross Domestic Product (GDP). This has

increased to 37.1% in 2018 [11] and comprises 97% of all formal business establishments in Malaysia. SMEs employ 66% of the Malaysian workforce as of 2018 and BNM also believes that SMEs have the potential to contribute more to the Malaysian economy. It is expected that by the year 2020, SMEs contribution to the Malaysian GDP will increase to 41% [11]. Also, financial institutions like banks are the main source of financing for SMEs, and lending to SMEs constitute almost half of the total sum of the financial institutions lending to the business sector [11]. The financing approval rate from financial institutions has exceeded 80%, with the financing approval rate reaching 91% in 2019. As of February 2018, there was still RM 3.3 billion still available to SMEs to use for working capital and for buying machinery

[11]. However, the higher loan approval rates to SMEs have also had some unintended consequences to financial institutions, which showed an increase in

Following [33], an increase in NPLs will affect the bank's profitability and liquidity which are the main components for the efficiency of the bank. There has been some research to find methods to mitigate this by using non-quantitative methods by analyzing the SME sales officers' psychological factors [11–14] as well as their past experiences [34]. Indeed, since there is no computerized credit analysis available for SMEs, banks have been forced to approach loan applications by SMEs using a case-by-case approach, where a personalized banking style is adopted. This makes the case for understanding how an individual bank sales officer approaches a

The global economic events of Brexit and the US-China Trade War in the last few years along with the unanticipated Covid-19 pandemic are still influencing the

NPLs from the business sector in 2019 [11] (**Figure 1**).

lending case very relevant in order to minimize NPLs.

**3. Conclusion**

**110**

**Figure 1.**

*Banking and Finance*

*Malaysian banking NPL. source: BNM.*

impaired loans should not have happened at all.

The authors thank Aiden Yong Ern Liang, for his help in clarifying economic concepts and sorting research documents and classifying them accordingly. Dr. Maizaitulaidawati Md Husin, for her knowledge, continuous support, and encouragement.

#### **Author details**

Wooi Keong Yong1,2\* and Wooi Meng Yong3

1 Centre for American Education, Sunway University, Subang Jaya, Malaysia

2 Azman Hashim International Business School, Universiti Teknologi Malaysia, Kuala Lumpur, Malaysia

3 Corporate Banking, United Overseas Bank Malaysia Bhd, Kuala Lumpur, Malaysia

\*Address all correspondence to: wooikeongy@sunway.edu.my

© 2020 The Author(s). Licensee IntechOpen. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/ by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
